Preparing for a better future: progressing comprehensive tax reform in Australia

• Business Council of Australia

Read the full text

10 October 2011

The Business Council of Australia calls for next week’s national tax forum to agree on the need for a 10-year overhaul of Australia’s tax system.

The council warns Australian governments face a combined annual budget shortfall of five per cent of GDP by 2050 unless there are comprehensive changes to the tax system and a more efficient and accountable approach to government spending.

In today’s terms that shortfall would be $70 billion, which is the size of the federal health and disability budget or around 20 per cent of the current federal tax take. Left unaddressed this will threaten the ability of governments to pay for essential services and the social safety net on which the Australian social compact is predicated.

This is a key finding in research underpinning the Business Council of Australia’s submission to next week’s national tax forum, released today. This research outlines projected trends in future combined spending by Commonwealth and state and territory governments, based on methodology used in the Intergenerational Report.

The submission calls on the Australian Government and parliament to embark on a 10-year reform of the tax system and government expenditure with four key actions:

• improve the efficiency and sustainability of future government expenditure
• reduce the reliance on volatile direct taxes in favour of more stable indirect taxes such as consumption tax and land tax, and abolish inefficient state taxes while identifying options to replace that revenue
• redesign the spending accountabilities and revenue raising capacities of the Commonwealth and states so the states have a more predictable share of revenue including potentially from a share of income tax
• simplify the tax system using the Henry tax review as the starting point.